26 July 2023
JPMorgan’s Marko Kolanovic remains bearish on stocks, cautioning that the current fervor surrounding artificial intelligence is inflating a potential bubble in the stock market. According to Kolanovic, the bubble is evident from the record 60-year high stock concentration in the S&P 500, with the top seven companies comprising over 25% of the index.
Such a heavy concentration is particularly evident in the Nasdaq 100, which recently had to implement a special rebalance as more than half of the index’s weight was made up by tech behemoths. Kolanovic cites these trends as potential indicators of a bubble, adding that anecdotal evidence also points to a potential bubble driven by AI.
Despite his belief in AI technologies, Kolanovic doesn’t consider current AI incarnations, particularly chatbots, ready for widespread deployment due to their tendency to fail on basic queries and occasionally providing incorrect responses to more complex ones.
Instead of focusing on the ongoing AI bubble, Kolanovic is paying closer attention to three potential triggers for a bearish turn: the lingering impact of global interest rate shock, the steady depletion of consumer savings and surging post-COVID demand, and the disconcerting state of global geopolitics. He posits these factors could eventually derail the stock market rally and usher in significant market sell-offs and volatility.